Current efforts in developing diabetes treatments focus on in vitro generation of functional beta cells for cell replacement therapies; however, these attempts have only been partly successful as factors involved in islet formation remain incompletely understood. The embryonic pancreas, which gives rise to beta cells, undergoes early epithelial rearrangements, including transient stratification of an initially monolayered epithelium, followed by microlumen formation and later resolution into branches. Within the epithelium, a multipotent progenitor cell (MPC) population is specified, giving rise to three important lineages: acinar, ductal and endocrine. Pdx1 is a transcription factor required for pancreas development and lineage specification, however few Pdx1 targets that regulate pancreatogenesis have been identified. We find that pancreatic defects in Pdx1−/− embryos initiate at the time when the progenitor pool is specified and the epithelium should resolve into branches. Pdx1−/− microlumen diameters expand aberrantly, resulting in failure of epithelial tubulogenesis and ductal plexus formation. Pdx1−/− epithelial cell proliferation is decreased and the MPC pool is rapidly lost. We identify two conserved Pdx1 binding sites in the Epithelial cadherin (E-cad) promoter, and show that Pdx1 directly binds and activates E-cad transcription. In addition, Pdx1 is required in vivo for maintenance of E-cad expression, actomyosin complex activity and cell shape. These findings demonstrate a novel link between regulators of epithelial architecture, specification of pancreatic cell fate and organogenesis.